How the banks create money

[Finsend]

Nice research there. Different people will of course draw different conclusions from these graphs but the Debt to GDP graph shows something interesting. Debt to GDP was compounding steadily since WW2 and - presumably - would have ended up being problematic at some time. (This is consistent with the "they create the principal but not the interest" theory). Richard Nixon's abandonment of gold in 1971 doesn't seem to have had much effect on the overall level of debt.

However, from 1984, we see a sudden jump in debt levels and thereafter, a faster compounding rate of debt. 1984 was the era of "Reaganomics" which saw a number of banking "reforms".
The Debt to GDP (components) graph shows that government borrowing is only part of the problem. The biggest contributors to rising debt are the banks themselves. Evidently it is cheaper (or less of a hassle) for banks to borrow from overseas sources than from the Fed.

The graphs only go up to 2008 so we don't see the GDP hiccuping yet. (Once overall debt becomes unsustainable you would expect it to have an adverse effect on GDP as increasing numbers of businesses become unprofitable).

You might like to look at Steve Keen's Debtwatch website for more information on this subject.

Here is a youtube from that site:

Thanx, psi0n.

I lack overview and (in depth) knowledge, but you probably don't (like some other people overhere) so I was (already) hoping you could/would say something about (all) this (data) - in very serious English. Since I have a feeling that some of this data might be connected, have realtionships, etc. Even with FRB maybe...

There migth be more recent graphs, I just swung some in here, geheh lazy as I am.
I am going to look at the link you provided!

Do you think (some) inflation might have to do with rising foodprices?
Do you think some people (3rd world countries for example) might be suffering from (dollar) inflation since they use 100% of their money for basics like food/shelter etc...? Or is this BS and too simplistic? Does US FRB (EU FRB) have a (large) impact on other countries? Etc.

cheers,
finsend

 

[psionl0]

Hi Finsend,

I just wanted you to know that I have not ignored your post. I just don't have any satisfactory answers to the questions you posed. So I thought I might give you some un-satisfactory answers in the hope that it gives you some pointers where you might direct your research. (Who knows? Maybe a more knowledgeable poster who isn't a "paranoid old man" can improve on them. )

Do you think (some) inflation might have to do with rising foodprices?

Not directly. Of course the reaction to rising food prices might add to inflation (eg excess borrowing/money creation).

Do you think some people (3rd world countries for example) might be suffering from (dollar) inflation since they use 100% of their money for basics like food/shelter etc...?

Well, the losers in any bout of inflation are those on fixed incomes or those who have to spend a bigger portion of their income on necessities (low income earners). Any downturn in food production would hit the 3rd world countries the hardest.

Or is this BS and too simplistic?

Perfectly valid questions. Rising levels of debt affect the viability of farms just as much as any other businesses (maybe more so since farmers need to be able to borrow large sums of money to tide them over the lean years).

Does US FRB (EU FRB) have a (large) impact on other countries? Etc.

FRB per se is not necessarily the entire problem. If it is correct that re-lending interest payments causes debts to rise exponentially then it probably doesn't matter which currency is used internationally. The most unsatisfactory aspect of FRB is that it forces governments to borrow most of the money needed to fund their budget deficits instead of printing it. OTOH if the international community loses confidence in the $US (possibly as a result of too much money creation) then "(large) impact" would probably be an understatement. The Euro, not so much - at least, not outside of Europe.

Speaking of more knowledgeable posters, when is tensordyne going to tear my equations to shreds?

Cheers

 

[Tippit]

Hi Finsend,
Well, the losers in any bout of inflation are those on fixed incomes or those who have to spend a bigger portion of their income on necessities (low income earners). Any downturn in food production would hit the 3rd world countries the hardest.

He didn't ask what would happen in the event of a downturn in food production, he asked about the effects of dollar inflation on the third world. That relates to an increase in the supply of money, not a decrease in the supply of food. Although from a practical perspective, it represents the misallocation of token money being used to purchase food that would otherwise be eaten by those who had to labor for their money - an artificial food shortage, in essence.

FRB per se is not necessarily the entire problem. If it is correct that re-lending interest payments causes debts to rise exponentially then it probably doesn't matter which currency is used internationally. The most unsatisfactory aspect of FRB is that it forces governments to borrow most of the money needed to fund their budget deficits instead of printing it. OTOH if the international community loses confidence in the $US (possibly as a result of too much money creation) then "(large) impact" would probably be an understatement. The Euro, not so much - at least, not outside of Europe.

This is why I think your pro-fiat money view is not only morally bankrupt, but logically untenable. If we presume that the central bank remits its profits back to the Treasury, then there is no functional difference between whether the government borrows from the central bank, or "prints it" in order to finance budget deficits. Since the Treasury ultimately receives the interest paid to the central bank after the bank's operating costs are deducted, the cost of borrowing is ultimately just an additional tax on top of the initial tax of the central bank creating the principal out of the ether. To the extent that most of the US budget deficits are, for the most part, funded by foreign central banks and the US central bank, as opposed to private lenders, you are merely advocating what is already the status quo. The exception is that you would disallow private lending of pre-existing money to governments, and that foreign governments are unlikely to "print money" to finance US budget deficits as they are now (by monetizing their own bonds, and using the proceeds to buy US paper). Of course, this would only mean in that case that much more of the deficit would have to be funded domestically by the inflation tax (money creation) or higher conventional taxes, which is a ridiculous "solution".

The only real solution to stop runaway government spending, is sound money. Banning government borrowing only to favor the "printing press" is merely a gimmick, although I agree it should also be banned so as to limit the exploitation by and of foreign politicians and bankers. Governments should not be allowed to borrow or print, they should operate on a limited basis from transparent and conventional forms of taxation, that everyone can understand when they open up their wallet.

Another aspect of fractional reserve banking which occured to me recently, is that the money multiplier while serving to increase private credit in good times at the expense of government credit, serves to increase government credit in bad times at the expense of private credit. Banks who are unwilling to lend to the general public will simply park their money with the government. Even anemic rates of return are vastly more profitable with far less risk than lending to the public, especially when the Fed subsidizes your credit. This has the effect of enabling the government to encroach upon everyone's lives more and more even as everyone else has to cut back and make concessions, whereas absent FRB, the "austerity" would be felt evenly across both public and private sectors.

 

[psionl0]

He didn't ask what would happen in the event of a downturn in food production, he asked about the effects of dollar inflation on the third world. That relates to an increase in the supply of money, not a decrease in the supply of food. Although from a practical perspective, it represents the misallocation of token money being used to purchase food that would otherwise be eaten by those who had to labor for their money - an artificial food shortage, in essence.

One of my "unsatisfactory" answers. I guess my point is that if an international currency is being used purely as a medium of exchange and the turn around time (between buying and selling) is relatively short then any risk is correspondingly small regardless of the soundness of the currency.

It is the countries that are locked into long term contracts to sell their produce for $US that have the most to lose in the event of a $US collapse.

If we presume that the central bank remits its profits back to the Treasury, then there is no functional difference between whether the government borrows from the central bank, or "prints it" in order to finance budget deficits.

Precisely. The fed collecting interest from the government then returning its profits back to the government is nothing more than churn. Since most of your paragraph I agree with I will only deal with the bits where I think you misunderstand me.

This is why I think your pro-fiat money view is not only morally bankrupt, but logically untenable.

To the extent that most of the US budget deficits are, for the most part, funded by foreign central banks and the US central bank, as opposed to private lenders, you are merely advocating what is already the status quo.

Suppose the government runs a ridiculously high deficit of $1T. Under the existing system it has to sell $1T of bonds. However, because this is a lot of money to take out of the money market, it would buy back about $100B of bonds using newly created base money.

At this point the government has financed its deficit with $100B of new fiat currency and $900B of bonds.

The banks of course can then use this $100B of base money to create up to $900B of M1 money. So we have a total $1T of new money and $900B of new bonds. The problem is that not only does the government have to pay interest on the $900B of money it borrowed, the public has to pay interest on the $900B that was created by the banks!

Under a full reserve system, the banks can't create money so the government can finance its deficit entirely with the printing press without having to borrow anything. Again, we have a total $1T of new money but nobody has to pay interest on it (apart from people who want to borrow some of it).

Both systems are versions of the "counterfeiting tax" but the difference between the two systems is usury.

Another aspect of fractional reserve banking which occured to me recently, is that the money multiplier while serving to increase private credit in good times at the expense of government credit, serves to increase government credit in bad times at the expense of private credit. Banks who are unwilling to lend to the general public will simply park their money with the government. Even anemic rates of return are vastly more profitable with far less risk than lending to the public, especially when the Fed subsidizes your credit. This has the effect of enabling the government to encroach upon everyone's lives more and more even as everyone else has to cut back and make concessions, whereas absent FRB, the "austerity" would be felt evenly across both public and private sectors.

If the banks are unwilling to create the maximum amount of money allowable under FRB then the government can monetize more of its debt (QE1, QE2, QE3, ... ).

The fact that banks might prefer to spend their reserves on bonds instead of creating loans is probably one of the reasons that countries like Canada or Australia have switched to the "corridor system" (where the central bank pays interest on the surplus reserves that the member banks deposit with it).

 

[Tippit]

One of my "unsatisfactory" answers. I guess my point is that if an international currency is being used purely as a medium of exchange and the turn around time (between buying and selling) is relatively short then any risk is correspondingly small regardless of the soundness of the currency.

And this is the folly of your view, in a nutshell. No currency is used solely as a "medium of exchange". It is held by someone, somewhere, at all times. Someone is always exposed to the risk and losses of currency devaluation, and it is most often the people who are the least likely to protect themselves from it (ie: people in the 3rd world who have no bank account, and literally save paper dollars, because their own currencies are far worse!) Wealthy people don't own currency, they own assets. This is why the inflation tax is a regressive tax.

Let me give you an example. Lets say that I have an intimate knowledge of dollar "security" features, so that I am able to counterfeit $2,000,000 in completely undetectable, absolutely perfect facsimiles of Federal Reserve Notes. Lets say I exchange these for a brand new Bugatti Veyron sports car. We have clear evidence that a theft has occured, as I've exchanged something of a negligible cost for something of great cost. Yet, according to you, we are to believe that if the holders of existing dollars simply turned them over faster, the economic impact of this theft vanishes! The reality is that the Bugatti is a scarce premium sports car, which took real natural resources and real engineers to conceive, design, and manufacture. Taking even one of the approximately 80 that are made each year off of the market will necessarily result in the prices of the other 79 that remain unsold to go higher, all else being equal.

Is a theft born by hundreds of millions of fiat money holders ok just because the burden is spread out? I certainly don't think so.

It is the countries that are locked into long term contracts to sell their produce for $US that have the most to lose in the event of a $US collapse.

It's the people actually holding US dollars and US dollar denominated bank accounts that have the most to lose in the event of a USD collapse. Sellers of food can default on their contracts and still have food to sell (and eat).

Precisely. The fed collecting interest from the government then returning its profits back to the government is nothing more than churn. Since most of your paragraph I agree with I will only deal with the bits where I think you misunderstand me.

Suppose the government runs a ridiculously high deficit of $1T. Under the existing system it has to sell $1T of bonds. However, because this is a lot of money to take out of the money market, it would buy back about $100B of bonds using newly created base money.

The US is running monthly deficits of well over $200 billion (and scheduled to explode higher), so I submit an annual $1T deficit is not so "ridiculous" in context. I would also add that the government doesn't care about the money market, the government monetizes bonds to fund itself in excess of normal market demand for debt, because of the very existence of valueless money that you yourself advocate!

At this point the government has financed its deficit with $100B of new fiat currency and $900B of bonds.

The banks of course can then use this $100B of base money to create up to $900B of M1 money. So we have a total $1T of new money and $900B of new bonds. The problem is that not only does the government have to pay interest on the $900B of money it borrowed, the public has to pay interest on the $900B that was created by the banks!

We already agree about the inherent problems with fractional reserve banking. You're preaching to the choir. But you're changing the subject from how deficits get funded, to the fact that the public has to pay interest to private banks for the priviledge of having their currency debased thanks to the money multiplier. This is a separate issue from having intrinsically worthless base money.

Under a full reserve system, the banks can't create money so the government can finance its deficit entirely with the printing press without having to borrow anything. Again, we have a total $1T of new money but nobody has to pay interest on it (apart from people who want to borrow some of it).

Both systems are versions of the "counterfeiting tax" but the difference between the two systems is usury.

In other words, you're ok with government stealing and runaway spending (gee, lets just monetize deficits under a 100% reserve system, not limit them), but not ok with bank stealing. So you're more of a statist than I thought.

I am unequivocably against stealing, and for putting hard limits on government spending, and its relentless encroachment upon our lives. You are obviously not, which is why the "solution" of monetary reform absent sound money is a trojan horse - a false solution. I don't want to throw off the yoke of economic slavery by bankers, only to embrace my new slave master, the politician. You obviously either don't comprehend this, or you accept it.

If the banks are unwilling to create the maximum amount of money allowable under FRB then the government can monetize more of its debt (QE1, QE2, QE3, ... ).

Yes, because that worked so well for those who are unemployed, and without any financial assets... I'll put you down as "pro-quantitative easing", too. Fantastic.

The fact that banks might prefer to spend their reserves on bonds instead of creating loans is probably one of the reasons that countries like Canada or Australia have switched to the "corridor system" (where the central bank pays interest on the surplus reserves that the member banks deposit with it).

Great. So if banks are unwilling to risk profiting by the sweat off our backs because we might fail, lets have the central bank monetize their interest payments, which is simply another way of profiting by the sweat off our backs without risk, via the inflation tax.

 

[Tippit]

In order to further distinguish our views, your view, in essence, says that if we abolish FRB, all of the interest and inflation that is going into the hands of private bankers could instead be saved, and transferred to the Federal Government if we merely allow them to monetize the entire deficit instead of borrowing it.

In my view, this doesn't go far enough. I don't much care whether the Federal Government monetizes or borrows its deficits, I want it to stop spending! I don't want any deficits at all, so it naturally follows that I don't want them to either monetize, OR borrow it, because both are de facto forms of taxation.

You don't seem to comprehend that this issue is completely separate and distinct from the issue of FRB, other than you like to relate them by claiming that if we merely abolished FRB, the government could debase our currency even more with the savings!

I don't pretend government spending is done on my behalf. Not only don't I want bankers exploiting FRB, nor do I want politicians, spending my hard earned purchasing power, running up deficits.

You are a statist, and, to a large degree, a hypocrite based on your other comments about government on this forum. The fact of the matter is, by supporting one element of the status quo (fiat money) as you condemn the other (FRB), you are still supporting the status quo.

I'm glad that at least I am clear now on where we really disagree! Alan Greenspan circa 1966 was right:

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

 

[psionl0]

And this is the folly of your view, in a nutshell. No currency is used solely as a "medium of exchange". It is held by someone, somewhere, at all times. Someone is always exposed to the risk and losses of currency devaluation, and it is most often the people who are the least likely to protect themselves from it (ie: people in the 3rd world who have no bank account, and literally save paper dollars, because their own currencies are far worse!) Wealthy people don't own currency, they own assets. This is why the inflation tax is a regressive tax.

<SNIP>

It's the people actually holding US dollars and US dollar denominated bank accounts that have the most to lose in the event of a USD collapse. Sellers of food can default on their contracts and still have food to sell (and eat).

Your explanation sounds better than mine so I think that I will go with it for now.

The US is running monthly deficits of well over $200 billion (and scheduled to explode higher), so I submit an annual $1T deficit is not so "ridiculous" in context. I would also add that the government doesn't care about the money market, the government monetizes bonds to fund itself in excess of normal market demand for debt, because of the very existence of valueless money that you yourself advocate!

Do you think I don't know that the situation is even more ridiculous than I described? The government consistently spends 50% more than it earns year in and year out. Any company director who did that would rot in jail but not the sociopaths in government. Hocking a country into oblivion is a capital (in the murderous sense) offence but nobody cares. Every government is doing it.

We already agree about the inherent problems with fractional reserve banking. You're preaching to the choir. But you're changing the subject from how deficits get funded, to the fact that the public has to pay interest to private banks for the priviledge of having their currency debased thanks to the money multiplier. This is a separate issue from having intrinsically worthless base money.

Debt has always been my subject and it is this that makes FRB evil. Your problem is that you have become so obsessed with the form of money that you have become blinded to the problem. You are not interested in any proposal to get rid of debt unless it is the "perfect solution". If an individual thinks he can make a profit by going into debt (and many can) or "party on" forever by running a tab then that is his choice. Just don't force taxpayers to do the same thing.

Understand this: DEBT IS SLAVERY.

In other words, you're ok with government stealing and runaway spending (gee, lets just monetize deficits under a 100% reserve system, not limit them), but not ok with bank stealing. So you're more of a statist than I thought.

Statist? Me??? WOW!

No, I am not ok with government stealing and runaway spending (we should seriously take away their "power of the purse") but this is a slightly lesser evil than inflicting taxpayers with debt.

I am unequivocably against stealing, and for putting hard limits on government spending, and its relentless encroachment upon our lives.

So am I.

You are obviously not, which is why the "solution" of monetary reform absent sound money is a trojan horse - a false solution. I don't want to throw off the yoke of economic slavery by bankers, only to embrace my new slave master, the politician. You obviously either don't comprehend this, or you accept it.

Don't you get it? We are already under the yoke of economic slavery by politicians. Until the public sends a clear message that they don't want big government and big government debt here is no way to stop their unbridled spending.

Yes, because that worked so well for those who are unemployed, and without any financial assets... I'll put you down as "pro-quantitative easing", too. Fantastic.

Great. So if banks are unwilling to risk profiting by the sweat off our backs because we might fail, lets have the central bank monetize their interest payments, which is simply another way of profiting by the sweat off our backs without risk, via the inflation tax.

Just because I describe how something works, doesn't mean that I in any way believe in, support or approve of it.

 

[Tippit]

Do you think I don't know that the situation is even more ridiculous than I described? The government consistently spends 50% more than it earns year in and year out. Any company director who did that would rot in jail but not the sociopaths in government. Hocking a country into oblivion is a capital (in the murderous sense) offence but nobody cares. Every government is doing it.

And yet, by ignoring the underlying reason that enables deficit spending, you apologize for it. You enable the sociopaths by your support of the inflation tax.

Debt has always been my subject and it is this that makes FRB evil. Your problem is that you have become so obsessed with the form of money that you have become blinded to the problem. You are not interested in any proposal to get rid of debt unless it is the "perfect solution". If an individual thinks he can make a profit by going into debt (and many can) or "party on" forever by running a tab then that is his choice. Just don't force taxpayers to do the same thing.

Understand this: DEBT IS SLAVERY.

This, coming from the guy who balked at my proposal to instantly forgive all government debts payable to central banks, or wall street money center banks, while continuing to pay interest on debt held by average citizens. Public debt originated on fraudulent terms in order to bail out private debts certainly IS slavery, why you would justify it by allowing it to stand is not consistent with your stated position.

Another thing I don't think you understand, is that the majority of US debt is *also* funded by monetization, even when foreign held, because central banks in foreign countries monetize their own debt, swap it for US currency, and buy US debt with it! It's the money that's the problem, not the debt. If we had sound money, the government would be left trying to borrow real money from real lenders, which would utterly disable its ability to run endless growing deficits. Perhaps you should consider the merit of sound money, for a change.

Statist? Me??? WOW!

No, I am not ok with government stealing and runaway spending (we should seriously take away their "power of the purse") but this is a slightly lesser evil than inflicting taxpayers with debt.

Of course you're a statist. You don't even have the excuse of most so-called "conservatives" because you understand how the system works. You understand precisely how fiat money enables runaway deficit spending, with or without debt, and you don't care.

So am I.

Don't you get it? We are already under the yoke of economic slavery by politicians. Until the public sends a clear message that they don't want big government and big government debt here is no way to stop their unbridled spending.

Just because I describe how something works, doesn't mean that I in any way believe in, support or approve of it.

Until the public understands that quibbling over fiscal policy means nothing in the face of a monetary system that enables the government to perpetually and arbitrarily loot savers and the elderly on fixed income, they will have the consequences of unbridled government spending and it's concomittant waste and fraud. Buy supporting fiat money, you tacitly approve of it.

One thing is clear to me, however, is that we aren't really arguing monetary policy anymore, just regular politics, and it is clear where you stand.

 

[psionl0]

Perhaps you should consider the merit of sound money, for a change.

I would love to have an economy based on sound money. However, there is no realistic way of bringing it about.

Your plan seems to be for the government to default on its debts, crash the economy and hope that in the aftermath, everybody has learned their lesson. This might be a terrific strategy if you happen to have enough of the shiny stuff to see yourself through the turmoil but for everybody else, it is a vote for a soup kitchen economy.

The other problem is that there is no way to force the government to stick with sound money. It only took a single stroke of the presidential pen to get rid of this inconvenient need for governments to practise fiscal responsibility.

 

[Tippit]

I would love to have an economy based on sound money. However, there is no realistic way of bringing it about.

I don't think this is true. I think you're suffering from cognitive dissonance. I think you realize that at least most of what I typed above is true, and you don't want to come to grips with it. Changing what we use as money is as realistic as it's ever been, it just requires educating the public and taking action.

Your plan seems to be for the government to default on its debts, crash the economy and hope that in the aftermath, everybody has learned their lesson. This might be a terrific strategy if you happen to have enough of the shiny stuff to see yourself through the turmoil but for everybody else, it is a vote for a soup kitchen economy.

Make no mistake about it, the crash is coming regardless. For those who have been unemployed for months, with their benefits and savings running out, facing a higher cost of living, the crash is already here. The soup kitchens are inevitable now. Selective debt default would at least ensure that taxpayer dollars would (hopefully, but not likely) go to people in need, rather than paid as interest to foreign and domestic banks. Austerity was made inevitable by the decades of easy credit, malinvestment, and low interest rates provided by the Federal Reserve. But where fiscal policy is concerned, we can at least direct what's left over of government revenue in a less regressive manner.

The other problem is that there is no way to force the government to stick with sound money. It only took a single stroke of the presidential pen to get rid of this inconvenient need for governments to practise fiscal responsibility.

That's a cop-out. You might as well apply that argument against abolishing fractional reserve banking too, and give up all hope. What the stroke of a pen can take away, the stroke of a pen can give. All that is necessary is to educate the public as to the nature of the problem, and enable them with real (not trojan-horse) solutions.

 

[psionl0]

Make no mistake about it, the crash is coming regardless.

The crash is imminent alright but not because of fiat money. It is because of DEBT. Politicians don't care how much DEBT they inflict on the country as long as they get to regard government as having a blank cheque. If we took away the banks' power to create money then it would be possible to pay down the DEBT without causing any undue hardship. Your attitude seems to be that DEBT is less important than taking away the governments' power to create money too. If you think the government can default on any part of its DEBT without there being serious repercussions then you are dreaming. Any attempt to change over to sound money while there is so much DEBT hanging over the country is like trying to bandage a cut finger while your artery is bleeding profusely.

 

[tensordyne]

The crash is imminent alright but not because of fiat money. It is because of DEBT. Politicians don't care how much DEBT they inflict on the country as long as they get to regard government as having a blank cheque. If we took away the banks' power to create money then it would be possible to pay down the DEBT without causing any undue hardship. Your attitude seems to be that DEBT is less important than taking away the governments' power to create money too. If you think the government can default on any part of its DEBT without there being serious repercussions then you are dreaming. Any attempt to change over to sound money while there is so much DEBT hanging over the country is like trying to bandage a cut finger while your artery is bleeding profusely.

I guess you are saying there is something going on with DEBT or something...

 

[psionl0]

I guess you are saying there is something going on with DEBT or something...

At last! Somebody gets it!!!

And to think that there is actually more than one poster who can't understand more than one word at a time.

 

[Tippit]

The crash is imminent alright but not because of fiat money. It is because of DEBT. Politicians don't care how much DEBT they inflict on the country as long as they get to regard government as having a blank cheque. If we took away the banks' power to create money then it would be possible to pay down the DEBT without causing any undue hardship. Your attitude seems to be that DEBT is less important than taking away the governments' power to create money too. If you think the government can default on any part of its DEBT without there being serious repercussions then you are dreaming. Any attempt to change over to sound money while there is so much DEBT hanging over the country is like trying to bandage a cut finger while your artery is bleeding profusely.

No, it's because of fiat money. It's because of all of the fraud, waste, and malinvestment caused by decades of artificially low interest rates. It's because of all of the business decisions skewed by a "risk-free" rate that isn't consistent with reality. It's because of the debasement of savers, and those on fixed income.

Yes debt is less important than what we use as money, because what we use as money ultimately regulates the amount of debt. If you think that the US can service its mountain of debt and unfunded liabilities, or pay off the principal in inflated dollars without any serious repercussions, then it is you who is dreaming. The portion of debt owed to central banks and money center banks is illegitimate, so any attempt to pay it off even in inflated dollars at the expense of the rest of society by imposing "austerity", is simply wrong.

You're myopically focused on the idea of debt itself, when what really matters is the transfer of wealth that debt service represents, and, more importantly, the transfer of wealth via the act of monetizing the principal payment, that is, monetary inflation. I don't advocate returning to sound money until all of the gold and silver in the possession of the dynastic banking families is confiscated, and they are all rotting in jail. Hopefully this happens sooner rather than later.

I presume you're advocating some form of the MRA, in which credit money is created and used to pay down the debt, while at the same time the reserve requirement ratio is slowly raised so as to avoid hyperinflation. There is no reason why we can't employ selective default as well. The truth of the matter is, as much as you claim to despise debt, you recognize none of it as illegitimate, and hence, you are exposed.

 

[Almo]

I don't advocate returning to sound money until all of the gold and silver in the possession of the dynastic banking families is confiscated, and they are all rotting in jail.

Doesn't this highlight one of the fundamental issues with being on the gold standard?

 

[Tippit]

Doesn't this highlight one of the fundamental issues with being on the gold standard?

No, they also control the fiat money standard. At least under a precious metals standard, there are limits. They can either buy our politicians with gold and silver, or money printed out of thin air. The only real solution, is justice.

 

[Stylesjl]

Speaking of Fractional Reserve Banking I wonder what you all think of this blogger? Its a very informative article explaining how FRB is mainly about the transformation of illiquid assets into liquid assets and how deposits can be surmised as a kind of American style put option.

http://andolfatto.blogspot.com/2011/09/fractional-reserve-banking.html

Funny thing is he actually works for the St Louis Federal Reserve Bank so he actually knows how this stuff works

 

[psionl0]

From the article:

The other way to eliminate retail-level banking panics is to pass legislation requiring all banks to hold 100% cash reserves. This would, of course, kill the business that transforms your illiquid assets into a liquid payment instruments. ...

Nothing to see here folks, move along.

 

[Stylesjl]

From the article:Nothing to see here folks, move along.

I don't understand your objection, mind elaborating?

 

[psionl0]

The truth of the matter is, as much as you claim to despise debt, you recognize none of it as illegitimate, and hence, you are exposed.

Now that some of the heat seems to have gone from this debate I thought I should address this point. I tend to approach this subject from a purely commercial aspect. Commercial problems ought to be solved by commercial measures - not mob rule. A contract is a contract no matter who the contractors are. If you don't like the terms of a contract then don't sign it. You don't enter into a contract, enjoy the benefits of the contract then say, "I am not bound by this contract because the other guy is <-- insert bad words here -->".

Like it or not, the people have given their government the authority to borrow money on the credit of the nation - without any caveats whatsoever (it's written into the constitution). Until the people revoke this authority, governments are free to legitimately deal with any criminals they want. Even if the authority is revoked, that only stops the government from borrowing money in the future. It is not a way of reneging on existing loans which the government took out with the (implied) blessing of its people.